India to become 3rd largest economy by 2027; m-cap to touch $10 trillion by 2030: Jefferies

Jefferies, the global investment banking and capital markets firm, is bullish on the Indian economy and expects it to become the third-largest economy in the world by 2027 amid a series of tailwinds such as demographics (consistent labour supply), a strong institutional framework of regulators, and an improvement in governance.

The brokerage said that over the next four years, India's gross domestic product (GDP), the standard measure of the value addition created through the production of goods and services, is likely to overtake that of Japan and Germany and touch US$5 trillion. Currently, India is the fifth-largest economy in the world. 

Backing up the claims on GDP growth, Jefferies said that Goods and Services Tax (GST) implementation, the Real Estate Regulation Act, and the government's focus on roads, airports, railways, and digital infrastructure have been drivers of the growth. 

Further, Jefferies believes that it will be impossible for large global investors to ignore India as its market capitalisation is likely to grow to around US$10 trillion by 2030, which stands currently at US$4.5 trillion. This will happen assuming the market returns are in line with the last 15-20-year history and new listings. 

Here are Jefferies' reasons for being upbeat about the Indian economy.

1. Rising entrepreneurship/ vibrant start-up ecosystem driving innovation

Jefferies believes that India's start-up ecosystem is driving innovation as India is home to 111 unicorns, making it the third largest unicorn hub globally after the US and China. The market value of these 111 unicorns stands at approximately US$350 billion.

2. India becoming a service export hub

As per the report, services exports account for nearly US$450 billion per year, and superior digital infrastructure and young and well-educated human resources will be drivers of this segment in the coming time.

3. Strong corporate culture and a history of strong market returns

Touching on the corporate sector and performance of the Indian markets, the brokerage said that the return on the equity-focused corporate sector, along with the strong institutional framework of regulators (SEBI, RBI), and intermediaries (responsible asset managers), has developed a large domestic investor base. 

Sustainable investment habits give visibility of US$50 billion per year flow into equities from domestic investors, which will likely keep the valuations on the expensive side but also reduce market volatility. 

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